How to get a California Resale Certificate
A resale certificate allows a business to purchase goods or services for resale without paying sales tax. In order to do so, the retailer will need to provide a California Resale Certificate to their vendor.
Learn more about what a Resale Certificate is, how to get one, and more.
What is a Resale Certificate?
When retailers purchase products to resell, they often don’t pay sales tax to the supplier on the purchase. The sales tax will still be paid, but instead of the retailer paying sales tax, the retailer charges sales tax to their customer on the final value of the merchandise. The collected sales tax is then sent by the retailer to the California Department of Tax & Fee Administration.
For example, let’s take a electronics store in San Francisco, California. When the store purchases laptops from suppliers to sell in their store, by having a resale certificate, the electronics store owner won’t have to pay sales tax on the transaction. This is because these laptops are bought for the purpose of resale, and sales tax is not assessed at this point.
When a customer comes into the electronics store and buys a laptop, the retailer will add California’s sales tax to the total price of the laptop. The customer pays this sales tax at the point of sale, and the electronics store collects it.
At the end of a specified period, generally each quarter, the electronics store will add up all the sales tax it has collected from its transactions. The store will then send this collected sales tax to the California Department of Tax and Fee Administration. Thus, while the electronics store is responsible for collecting and remitting the sales tax, it is actually the final customer who bears the cost of the sales tax.
The purpose of the certificate is to provide evidence of why sales tax was not collected on a transaction. Similar names for a resale certificate include reseller number, seller’s permit, exemption certificate, wholesale license, or reseller’s license. In order for the supplier to allow the tax-exempt purchase, the seller needs proof the buyer intends to resell the product by providing a valid resale certificate.
The sales tax exemption is only intended to be used for inventory that will be resold and not intended for the tax-free purchase of items used in normal business operations such as paper, pens, etc.
Before a business starts selling products or providing taxable services, they must first get a California Seller’s Permit from the California Department of Tax & Fee Administration. The Seller’s Permit is sometimes referred to as a sales tax permit, sales tax number, or sales tax license.
Is a Resale Certificate the same as a sales tax ID?
The Sales Tax Permit and Resale Certificate are commonly thought of as the same thing, but they are actually two separate documents. The Sales Tax Permit allows a business to sell and collect sales tax from taxable products and services in the state, while the Resale Certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
After registering, a sales tax number will be provided by the California Department of Tax & Fee Administration. This number will be listed on the Resale Certificate.
Steps to fill out the California Resale Certificate
A resale certificate can be generated by the buyer or seller, provided their certificate contains the required information. To make things easier, the Department of Tax & Fee Administration has a Resale Certificate (BOE-230) that is available for download to document tax-free transactions.
Filling out the California Resale Certificate (Form BOE-230) is pretty straightforward but is critical for the seller to gather all the information.
In the case of a sales tax audit, the California Department of Tax & Fee Administration requires the seller to have a correctly filled out BOE-230 Resale Certificate. Without it correctly filled out, the seller could end up owing sales taxes that should have been collected from the buyer in addition to penalties and interest.
Step 1 – Begin by downloading the California Resale Certificate Form BOE-230
Step 2 – Enter the seller’s sales tax permit number
Step 3 – Describe the business activities of the seller
Step 4 – Enter the business name of the seller
Step 5 – Describe the property being purchased for resale. Be sure to be descriptive and use either an itemized list or a general description.
Step 6 – Enter the name, signature title, address, and phone number of the purchaser
BOE-230 Resale Certificate Fillable Form
California Resale Certificate FAQs
How much does a resale certificate cost in California?
There is no cost for a Resale Certificate in California.
Does a California Resale Certificate Expire?
A resale certificate in California is valid until it is revoked in writing by the seller unless the certificate was issued for a specific transaction, which is generally good for up to one year.
Where do I file the California resale certificate?
The resale certificate is kept on file by the seller and is not filed with the state.
Are sellers required to accept resale certificates?
Sellers are not required to accept resale certificates, however, most do. If the vendor doesn’t accept the certificate, the buyer will have to pay sales tax on the merchandise being purchased. In most cases, a credit for the sales taxes paid is available by filing the California sales tax return.
If the seller is out-of-state, California is one of a few states that don’t recognize out-of-state resale certificates. In order to purchase tax-free from vendors in other states, the buyer will have to register for a sales tax permit in the seller’s state.
What steps should a business take to accept a resale certificate?
When a business is presented with a resale certificate, the burden of proof is on the seller to verify that the buyer’s information is correct and to keep these records.
Failing to verify this information may put the liability of paying California sales taxes on the seller. It’s also important to note that a seller could end up with a misdemeanor charge if they issue a resale certificate in order to avoid collecting sales tax from a buyer. This charge can come with a fine of $1,000 to $5,000 and/or imprisonment for up to one year.
Before accepting a resale certificate, a seller should:
– Review the resale certificate to make sure it is completely filled out.
– Verify the purchaser’s sales tax permit by visiting the California Department of Tax and Fee Administration’s verification page or calling 888-225-5263.
– Sellers are also responsible for examining the certificate and evaluating whether the goods sold are reasonably consistent with the purchaser’s line of business. For example, if the buyer’s business is a car dealership but they are wanting to purchase office supplies tax-free, the seller may want to investigate further.
– Keep a file of resale certificates.
Alaska (no sales tax)
Delaware (no sales tax)
Montana (no sales tax)
New Hampshire (no sales tax)
Oregon (no sales tax)